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Markets recovered partially by close on Tuesday with the S&P BSE Sensex ending at 34,195 levels, down 561 points. The 30-share index recovered over 600 points in intra-day deals after opening 1227 points lower. The fall comes on the back of a spike in bonds yields. Overnight, US markets had suffered their biggest loss in over six years. Back home, investors were also wary ahead of the outcome of the RBI’s monetary policy review on Wednesday.

At an industry event, Finance Secretary Hasmukh Adhia sought to assuage investor concerns and said the sell-off in equity markets was due to a weak global sentiment and not because of long-term capital gains tax re- introduced after 14 years.

Strong prospects of the Fed hiking interest rates in the next month has led to a spike in US bond yields, which touched 2.89%, highest level in nearly four years. The yields have been steadily increasing throughout January as signs of improving economy stimulated fears of inflation and increase in borrowing cost.

US stocks saw their biggest one-day fall in six years on Monday, as investor profit taking brought the market back down from record highs seen in late January, after benchmark bond yields rose to a four year high last week.

The Dow Jones Industrial Average fell nearly 1,600 points for its biggest intraday drop in history in points terms, or more than 6%, before ending down 1,175.21 points, or 4.6% for its biggest one-day fall since August 2011.

Dow and benchmark S&P 500 index had witnessed their best monthly gains in two years in January, with stocks reaching record levels on January 26, supported by the benefit of a cut in U S corporate taxes in December, rising earnings, and healthy global economic growth.

A rout in global equities deepened in Asia on Tuesday as inflation worries gripped financial markets, sending US stock futures sinking further into the red after Wall Street suffered its biggest decline since 2011.

Reserve Bank of India's (RBI) is likely to keep key rates unchanged in its Monetary Policy Committee (MPC) meeting on Tuesday. However, the bank may toughen its warning against inflation, lying on the ground for a hike in 2018 after prices accelerated at the fastest pace in the last 17 months. The bank is also worried about high global crude prices, experts say.

Though RBI has held the rates steady since a 25 basis point cut in August 2017, the prospects of rate hike have increased, as annual inflation accelerated to 5.21 percent in December 2017.